EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Chapter 10, Problem 5RQ
To determine
Two countries having different
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Assume a world of two nations USA and The two nations produce machinery and agriculture. The USA can produce 160 units of machinery or 200 units of agriculture while Australia can produce 140 units of machinery or 50 units of agriculture, in the same time period.
Define “absolute advantage”
Which country, Australia or USA, has an absolute advantage in the production of agriculture and machinery? Explain the basis for your answer.
Which country – Australia or USA - has a comparative advantage in production of machinery and agriculture? Define comparative advantage and explain how it applies in this example.
Q)Suppose that country A using one unit of labor can produce 80 pounds of apples or 20 pounds of oranges, while country B using the same unit of labor can produce 40 pounds of apples or 15 pounds of oranges. This shows that:
Group of answer choices
If A and B trade, A should specialize in the production of oranges.
B has an absolute advantage in the production of apples.
B has a comparative advantage in the production of apples.
B has a comparative advantage in the production of oranges.
Consider a simplified example of two countries - Singapore and Indonesia - producing two goods – telecommunications equipment and electrical circuit apparatus.
Using all its resources, Singapore can produce either 50 telecommunications equipment, or 100 electrical circuit apparatus. Using all its resources, Indonesia can produce either 1,000 telecommunications equipment, or 5,000 circuit apparatus.
(a) Which country/countries has/have the absolute advantages and the comparative advantages in the production of telecommunications equipment, and of electrical circuit apparatus? Explain and show.
(b) Consider the case of constant opportunity cost. What will be the resulting patterns of trade, terms-of-trade, and the aggregate production and consumption? Provide a diagram to illustrate, with telecommunications equipment on the y-axis.
(c) It is found that contrary to the above, there is no complete specialisation in both Singapore and Indonesia.
Instead, Singapore partially specialises in…
Chapter 10 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Ch. 10.2 - Prob. 1MQCh. 10.4 - Prob. 1MQCh. 10.4 - Prob. 2MQCh. 10.4 - Prob. 1.1MQCh. 10.5 - Prob. 1TTACh. 10.5 - Prob. 2TTACh. 10.7 - Prob. 1MQCh. 10.7 - Prob. 2MQCh. 10.7 - Prob. 3MQCh. 10.8 - Prob. 1TTA
Ch. 10.8 - Prob. 2TTACh. 10.8 - Prob. 1MQCh. 10.8 - Prob. 2MQCh. 10 - Prob. 1RQCh. 10 - Prob. 2RQCh. 10 - Prob. 3RQCh. 10 - Prob. 4RQCh. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Prob. 8RQCh. 10 - Prob. 9RQCh. 10 - Prob. 10RQCh. 10 - Prob. 10.1PCh. 10 - Prob. 10.2PCh. 10 - Prob. 10.3PCh. 10 - Prob. 10.4PCh. 10 - Prob. 10.5PCh. 10 - Prob. 10.6PCh. 10 - Prob. 10.7PCh. 10 - Prob. 10.8PCh. 10 - Prob. 10.9PCh. 10 - Prob. 10.10P
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- Starting with the production frontiers for Nation 1 and Nation 2 shown in Figure 5.4, show graphically that even with a small difference in tastes in the two nations, Nation 1 would continue to have a comparative advantage in commodity X.arrow_forwardGlacier has a comparative advantage in the production of peas , while Denali has a comparative advantage in the production of . Suppose that Glacier and Denali specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of million pounds of peas and million pounds of lentils. Suppose that Glacier and Denali agree to trade. Each country focuses its resources on producing only the good in which it has a comparative advantage. The countries decide to exchange 6 million pounds of peas for 6 million pounds of lentils. This ratio of goods is known as the price of trade between Glacier and Denali. True or False: Without engaging in international trade, Glacier and Denali would not have been able to consume at the after-trade consumption bundles.arrow_forwardSuppose the United States is currently producing 140 tons of hamburgers and 63 tons of tacos and Mexico is currently producing 14 tons of hamburgers and 35 tons of tacos. If the United States and Mexico each specialize in producing only one good (the good for which each has a comparative advantage), then a total of _____ additional ton(s) of hamburgers can be produced for the two countries combined (enter a numeric response using an integer) and a total of ____ additional ton(s) of tacos can be produced.arrow_forward
- The two products, X and Y, and the two nations, A and B. The following equations provide the production possibility frontier and utility function for each country: A. Does nation A’s economy exhibit constant opportunity cost in production? How about nation B? Support your answer using numeric/quantitative example. B. What is the optimal level of production and consumption in autarky for nation A and nation B which maximizes its community utility? Show full solution for both nations. C. Who has comparative advantage in producing X? How about Y? Support your answer. (5 points)arrow_forwardComment on the following statement: “An examination of the Ricardian model of comparative advantage yields the clear result that trade is (potentially)beneficial for each of the two trading partners since it allows for an expanded consumption choice for each. However, for the world as a whole, the expansion of production of one product must involve a decrease in the availability of the other, so that it is not clear that trade is better for the world as a whole as compared to an initial situation of non-trade (but efficient production in each country). ”arrow_forwardThe production possibilities frontier (PPF) for Honduras and Brazil, representing hypothetical levels of production, are shown in the graphs. Assume that, without trade, each country is initially producing and consuming at point A on its PPF curve. Suppose these countries decide to trade. Each country will specialize in the production of the good for which it has a comparative advantage. Assume the countries agree to trade. The terms of trade are 6000 tons of bananas for 4000 tons of steel. Move the post‑trade consumption point for each country to reflect their post‑trade consumption. Which good will each country produce? Honduras will produce bananas and Brazil will produce steel. Brazil will produce both bananas and steel. Honduras will produce both bananas and steel. Honduras will produce steel and Brazil will produce bananas.arrow_forward
- "The Heckscher-Ohlin Model suggests that the basis of comparative advantage lies primarily in a difference in factor endowments between countries, and that if countries enter into international trade based on that comparative advantage, they will be better off compared to other theories." Discuss this statementarrow_forwardRefer to Table 1-1 Now, each country spends all 40 hours of its time producing only the good for which it has a comparative advantage. What is the total output of CHEESE produced by both countries combined now?arrow_forwardTrue or False: According to the theory of comparative advantage in international trade, even if one country is less efficient in the production of all goods compared to another country, both countries can still benefit from trade by specializing in the production of the goods in which they have a comparative advantage, leading to overall gains in efficiency and economic welfare.arrow_forward
- Candonia has a comparative advantage in the production of , while Desonia has a comparative advantage in the production of . Suppose that Candonia and Desonia specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total ofarrow_forwardExplain, with a two-country, two-good model, why the Heckscher-Ohlin model predicts only partial specialisation in the production of two goods, while Ricardo's comparative advantage model predicts full specialisation when opening up to international trade. You can opt to present your explanation with the aid of diagrams.arrow_forwardSuppose that Spain and Germany both produce oil and shoes. Spain's opportunity cost of producing a pair of shoes is 3 barrels of oil while Germany's opportunity cost of producing a pair of shoes is 11 barrels of oil. By comparing the opportunity cost of producing shoes in the two countries, you can tell that has a comparative advantage in the production of shoes and has a comparative advantage in the production of oil. Suppose that Spain and Germany consider trading shoes and oil with each other. Spain can gain from specialization and trade as long as it receives more than of oil for each pair of shoes it exports to Germany. Similarly, Germany can gain from trade as long as it receives more than of shoes for each barrel of oil it exports to Spain. Based on your answer to the last question, which of the following prices of trade (that is, price of shoes in terms of oil) would allow both Germany and Spain to gain from trade? Check all that apply. 4…arrow_forward
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